Luck Versus Skill: Truths Every Investor Needs To Know

Forbes

17-07-2025

Rodolfo Delgado is a Mexican Architect who loves New York City, real estate and tech. He's the CEO of Replay Listings.
When people talk about investing, particularly in real estate, the conversations usually gravitate toward topics like property selection, market timing or financing options. Rarely do I hear people discuss two less obvious yet profoundly influential factors: the power of compounding and the dual forces of luck and risk.
After spending over a decade in real estate and entrepreneurship, I've learned the true value in how these elements intersect and shape long-term investment outcomes. Let's dive deeper into these concepts and explore how understanding them can significantly improve your investment strategy.
The Silent Force Behind Real Estate Growth
Many have called compound interest the "eighth wonder of the world," and while real estate doesn't always deal directly with interest, it absolutely benefits from compounding growth. Simply put, compounding in real estate refers to how property values and income can increase exponentially over time when profits are reinvested.
For example, early in my career, I witnessed a client purchase a modest apartment building in New York. At first glance, the building didn't seem remarkable; it had average returns and required routine maintenance. However, by reinvesting the rental income to make strategic improvements, my client incrementally increased rent and, subsequently, property value over several years. Eventually, the property appreciated substantially, far exceeding initial projections.
As can be seen, even minor reinvestments can lead to outsized returns over time. To leverage this compounding effect, my advice is straightforward: Resist the temptation to quickly cash out on real estate profits. Instead, consistently reinvest a portion of your returns into enhancing your property or diversifying into similar assets. It's a simple yet effective method to accelerate long-term growth.
Recognizing Luck And Risk
Early in my real estate career, I experienced firsthand how easily luck can masquerade as skill. Shortly after entering the market (about a decade ago), I facilitated a transaction for a property in an emerging neighborhood in Manhattan. Within a few years, the opening of prominent stores turned the area into a much more desirable destination, skyrocketing property values. At the time, I credited myself entirely, thinking I had cleverly foreseen the market's future. Looking back, however, luck played a substantial role in that success, as the changes driving value were beyond my control or prediction. The truth is, I was lucky.
In his book, The Psychology of Money, Morgan Housel brilliantly distinguishes between luck and risk. He defines luck as the positive outcome of events largely beyond our control, while risk refers to the opposite—the negative outcomes that come from similarly uncontrollable factors. Both play significant roles in investment outcomes, but few investors consciously account for their impact.
My actionable advice here is twofold. First, remain humble and objective: When things go well, acknowledge the role luck may have played. Doing so helps avoid complacency and reckless optimism. Secondly, manage risk by diversifying across property types, locations and strategies. Recognizing that negative, unpredictable events can and do occur, thoughtful diversification ensures no single uncontrollable event can derail your entire portfolio.
Allowing Time To Unlock Value
One of the biggest lessons I've learned as an investor is the incredible value of patience. Real estate investing, unlike some quick-turn strategies, typically rewards those who maintain a longer-term vision. Just as with compounding, letting investments mature over time significantly enhances returns.
Take my company's urban development ventures in Mexico as an example. We specialize in acquiring land on the city outskirts, bringing in essential services like roads, water and electricity, and then subdividing these large parcels into smaller, affordable plots ideal for small businesses and individual investors. Our investors who experience the greatest returns are consistently those who patiently hold their land, watching its value appreciate as the city inevitably expands outward.
This highlights an important piece of advice: Before purchasing property, clearly define your investment horizon. When you enter an investment knowing it's designed to grow in value over a five- or 10-year timeframe, you'll be less tempted by short-term fluctuations or impulsive selling decisions. Patience in real estate isn't just a virtue; it's a strategic advantage.
Using Uncertainty To Your Advantage
Periods of volatility often reveal valuable opportunities. Real estate markets experience cycles, and downturns are natural parts of the investing journey. The key is not to avoid volatility altogether but to use it as an opportunity for strategic acquisition or consolidation.
During the market uncertainty following the 2008 financial crisis and more recently during the pandemic, savvy investors carefully acquired undervalued properties in prime locations. They weren't speculating; they were strategically purchasing assets that met their long-term criteria, knowing full well the market would eventually rebound.
When investing in real estate, it is essential to establish criteria and conditions beforehand that will guide your decisions during turbulent times. When uncertainty hits, you can move quickly, confidently acquiring quality assets at favorable terms. Embracing volatility as part of your investment strategy transforms market downturns from moments of panic into opportunities for strategic growth.
Playing The Long Game
Great investors aren't necessarily those who pick the perfect property at the perfect time. They're investors who deeply understand the value of compounding and appreciate (and recognize) the roles that luck and risk play. As you move forward in your real estate journey, continually remind yourself of these silent but powerful influences. By doing so, you'll position yourself to capitalize on growth, manage unpredictability and achieve sustainable, long-term success.
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